BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
AB 1549
Assembly Banking and Finance Committee
As Amended April 13, 2009
Hearing Date: June 16, 2009
Code of Civil Procedure
GMO:jd
SUBJECT
Judgment Liens: Priority
DESCRIPTION
This bill would restore the ability of judgment creditors to
obtain judgment liens against the assets of a judgment debtor
organization that is incorporated or registered in another state
but has assets located in California. Specifically, the bill
would:
(1)eliminate the condition that a judgment lien on personal
property of the judgment debtor can be obtained only if a
security interest in the property could be perfected under the
Commercial Code by filing a financing statement with the
Secretary of State at the time the lien is created; and
(2)require instead that the personal property against which a
judgment lien is to be created be located in California, or
the judgment debtor is located in the state.
This bill would establish a new priority rule, whereby a
security interest in personal property perfected by the filing
of a financial statement or other action under the laws of
another state would have priority over a California judgment
lien in the same personal property.
(more)
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BACKGROUND
When the Commercial Code was revised in 2001, certain rights of
judgment creditors under the Code of Civil Procedure were
inadvertently affected. In particular, the right of a judgment
creditor to obtain a judgment lien against the assets of a
foreign registered organization (corporation, limited liability
company, limited partnership, limited liability partnership, or
similar business organization that was organized in another
state or a foreign country) was eliminated because a condition
for the creation of the judgment lien became impossible to meet.
This bill would correct that inadvertent error as well as make a
few other changes to the Code of Civil Procedure sections
relating to judgment liens against personal property.
CHANGES TO EXISTING LAW
1. Existing law provides that a judgment lien on personal
property is a lien on all interests in specified personal
property that are subject to enforcement of a money judgment
against the judgment debtor at the time the lien is created,
if a security interest in the property could be perfected
under the Commercial Code by filing a financing statement at
that time with the Secretary of State. (Code Civ. Proc. Sec.
697.530(a).)
This bill would remove the condition that a judgment lien on
personal property can only be created if a security interest
in the property could be perfected under the Commercial Code
by filing a financing statement with the Secretary of State at
the time when the lien is created.
This bill would instead require that, to create a judgment
lien against the following tangible personal property, the
judgment debtor be located in this state or the property be
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located in this state:
(1)for accounts receivable, the judgment debtor is located in
the state;
(2)for tangible chattel paper (as defined in Commercial Code
Section 9102, i.e., chattel paper consisting of record or
records consisting of information inscribed on a tangible
medium), the judgment debtor is located in the state; and
(3)for personal property consisting of equipment, products,
inventory, and negotiable documents of title, the personal
property is located within this state.
This bill would provide that whether a person is located in
this state is determined in accordance with Section 9307 of
the Commercial Code, except that a registered organization (a
corporation, LLC, limited partnership or similar business
organization) organized under the law of a sister state,
normally located in that state under Section 9307(e), would be
located in this state if it has a place of business or its
chief executive office in this state.
2. Existing law identifies certain personal property of a
judgment debtor, to which a judgment lien does not attach.
(Code Civ. Proc. Sec. 697.530(d).)
This bill would add the following to the list of property to
which a judgment lien would not attach:
(1) as-extracted collateral, as defined in Commercial Code
Section 9102(a)(6) (oil, gas, and other minerals that are
subject to a security interest created by the debtor before
extraction and that attaches to the minerals as they are
extracted, and accounts arising from the sale of said
minerals at the wellhead or the minehead of the oil, gas or
other minerals in which the debtor had an interest before
extraction); and
(2) timber to be cut.
3. Existing law provides that priority between a judgment
lien on personal property and a conflicting security interest
in the same personal property shall be determined according to
priority in time of filing or perfection, as provided. (Code
Civ. Proc. Sec. 697.590.)
This bill would establish a new priority rule, providing that
a security interest in personal property perfected by the
filing of a financial statement or other action under the law
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of a jurisdiction other than this state has priority over a
California judgment lien in the same personal property.
This bill would add agricultural lien to various provisions
relating to judgment liens on personal property that omitted
agricultural liens, making them subject to the rules relating
to priority of judgment liens.
4. Existing law provides that the officer levying an execution
lien or attachment lien upon a deposit account shall
personally serve a copy of the writ and notice of levy either
on: (a) the financial institution that maintains the deposit
account; or (b) a centralized location within the county as
designated by the financial institution. (Code Civ. Proc.
Sec. 700.140(a).)
This bill would instead provide that the officer levying an
execution lien or attachment lien upon a deposit account shall
personally serve the writ and notice of levy to a centralized
location within the state as designated by the financial
institution that maintains the deposit account.
COMMENT
1. Need for the bill
According to the author, "the purpose of the bill is to
reinstate the ability of judgment creditors to obtain judgment
liens against the assets of foreign registered organizations.
Before July 1, 2001, the author explains, judgment creditors had
that ability, but lost it on that date as a result of major
changes in Division 9 of the Commercial Code that affected the
rights of judgment creditors under the Code of Civil Procedure."
2. AB 1539 would correct an inadvertent error confirmed by
case law to have occurred with adoption of changes to the
Commercial Code
Those changes to the Commercial Code made in 2001 included
definitions for the location of registered organizations (those
organized in California as well as in other states or foreign
countries) for purposes of creating and perfecting security
interests and liens. Prior to July 1, 2001, registered
organizations were deemed located in the states where they were
organized, where they had their place of business or, if they
had more than one, where their chief executive offices were
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located. The proper places to file financing statements to
perfect security interests in the assets of registered
organizations were where the tangible assets (such as inventory,
equipment, farm products) were located, or where the registered
organization was deemed located for intangible assets (such as
accounts receivable). When the revamped Division 9 of the
Commercial Code became effective, the deemed location of a
registered organization became the state of incorporation or
registration, and that state became the proper place to file a
financing statement for both tangible and intangible assets.
The sponsor of the bill, the Insolvency Committee, Business Law
Section of the State Bar of California, contends that those
changes in the deemed location and proper filing office for
registered organizations are problematic for judgment creditors
because, under the Code of Civil Procedure, they can only obtain
judgment liens against the assets of a judgment debtor by filing
a notice of lien with the California Secretary of State "if a
security interest [against those assets] could be perfected
under the Commercial Code by filing a financing statement at
that time with the [California] Secretary of State." (Code Civ.
Proc. Sec. 697.530(a).) If the judgment debtor is a foreign
registered organization, a judgment creditor cannot obtain a
judgment lien because the proper place to file a financing
statement against the assets of the foreign registered
organization is the state where it is registered (e.g.,
Delaware).
By removing the requirement that a security interest in the
property could be perfected at the time the lien is created,
this bill effectively allows judgment creditors to file notices
of judgment liens against the assets of registered organizations
even if they are companies registered or incorporated in another
state.
This interpretation of what happened with this ability of
judgment creditors to obtain a judgment lien against assets of a
foreign organization was confirmed by the bankruptcy court in
Aura Systems, Inc. v. Baravich (In re Aura Systems, Inc.) 347
B.R. 720 (Bankr. C.D. Cal.2006) (judgment creditor could not
obtain valid judgment lien under California law against assets
of Delaware corporation because filing of a financing statement
with the California Secretary of State no longer satisfied
requirements of Section 607.530(a) of the Code of Civil
Procedure).
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This bill would remove that requirement and allow a judgment
lien to be filed or recorded against the assets of a registered
organization by simply filing a notice of judgment lien in the
office of the Secretary of State.
3. New rules for judgment liens against personal property;
priority liens and execution of judgments
This bill would establish some new rules to clarify how a
judgment lien may be obtained against personal property of a
judgment debtor:
(1)it would require that, to create a judgment lien against
accounts receivable, the judgment debtor be located in this
state;
(2)it would require that for tangible chattel paper (as defined
in Commercial Code Section 9102, i.e., chattel paper
consisting of record or records consisting of information
inscribed on a tangible medium), the judgment debtor be
located in the state; and
(3)for personal property consisting of equipment, products,
inventory and negotiable documents of title, the personal
property is located within this state.
The bill also would give priority to a judgment lien in the
personal property of a judgment debtor that was perfected by the
filing of a financing statement pursuant to the law of another
state or perfected according to the law of another state, over a
judgment lien in the same personal property filed in this state.
Finally, this bill would allow a levying officer to personally
serve the writ of execution and notice of levy to a centralized
location within the state (as opposed to the county, which is
existing law) as designated by the financial institution. As in
existing law, when received at the central location designated
by the financial institution, a writ of execution and notice of
levy would be applied to all deposit accounts held by the
financial institution regardless of the location of that
property. The bill, however, would impose no obligation on the
financial institution to designate a central location for the
service of writs of execution and notices of levy.
Support : None Known
Opposition : None Known
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HISTORY
Source : Insolvency Committee, Business Law Section, State Bar
of California
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote :
Assembly Judiciary Committee (Ayes 10, Noes 0)
Assembly Banking and Finance Committee (Ayes 9, Noes 0)
Assembly Floor (Ayes 78, Noes 0) (Consent)
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